Monterey bonds under scrutiny by Moody's credit rating agency

Monterey is among more than two dozen California cities under scrutiny from a top U.S. credit-rating agency because of economic pressures facing many cities in the state.

Moody's Investors Service announced it would review 27 cities, including Monterey, for possible downgrades of ratings for lease-backed bonds backed by general fund money.

City officials said Wednesday the pending review is not a cause for alarm, but more a case that Moody's is looking at the credit-worthiness of all the California cities it rates. Moody's rates only 95 of 482 California cities.

"We have a balanced budget and have been very responsible," said Assistant Finance Director Julie Porter.

Assistant City Manager Mike McCarthy said, "California is in a little bit of dire straits and that's why Moody's is looking at us. ... We feel we are doing pretty well."

Moody's identified two highly rated Monterey lease-revenue bond issues under review for downgrade. They are Monterey's only outstanding bonds:

Moody's said it had already downgraded eight municipal pension obligation bonds and would review San Francisco and Los Angeles for possible upgrades. The review of 32 cities came after an August report in which Moody's looked at economic pressures on California cities and predicted more municipalities may pursue bankruptcy.

Three California cities — Stockton, San Bernardino and Mammoth Lakes — filed for bankruptcy this summer. Last week, Atwater declared a fiscal emergency and may be headed for bankruptcy.

"California cities operate under more rigid revenue constraints than cities in many other parts of the country," Moody's senior vice president Eric Hoffman said in a prepared statement. "Combined with steeply rising costs, these constraints mean that these cities will likely recover more slowly than their peers nationally, even if the state's economic recovery tracks the nation's."

Many California cities face increasing pressures on their ability to raise money for general operations, Hoffman said.

"Since the adoption of Proposition 13 in the late 1970s, the cities' inability to access their local property tax bases for increasing operating funds led to diversification into even more economically sensitive revenue sources, such as sales, business and hotel taxes," Hoffman said.

McCarthy likened the review to a "a general audit, and it's our turn."

He said he didn't believe the review would affect the city's overall credit ranking. "The city has a bond rating which is very high," he said.

Porter said, "We will have an opportunity to demonstrate our specific story and demonstrate why we shouldn't be lumped into a general downgrade."

At the outset of hearings on the city's 2012-13 budget, City Manager Fred Meurer declared the city on "solid financial footing."